Tax & National Insurance Guide 2019/2020

Tax & National Insurance Guide 2019/2020 (updated January 2021)

1. Introduction (p.1-7) a) The effect of Covid-19 b) Making Tax Digital (MTD) update c) IR35 – roll out of off-payroll arrangements d) New tax guidance for the entertainment sector e) Check Employment Status for Tax (CEST) Questionnaire f) Impact of Brexit on tax and social security arrangements

2. Tax (p.8-32)

a) Registering as self-employed b) Keeping Records c) Completing the Tax Return d) Foreign Taxation e) Expenses f) Tax Allowances and Taxable Bands g) Payment of Tax h) Losses i) Tax Investigations and Disputes j) Equity Pension Scheme (EPS) payments k) Student loans

3. National Insurance Contributions (NICs) (p.32-40)

a) Class 2 NICs b) Class 4 NICs c) Other types of national insurance d) Maximum NICs liability e) National Insurance Credits f) National Insurance Contributions Abroad

4. Contacts List (p.41-42) 1

Equity Tax and NIC Guide 2019/20 – updated January 2021

1. INTRODUCTION

This Guide is intended for those submitting tax returns for tax year 2019/20 and therefore reflects the rates and tax and national insurance regulations applicable to that tax year.

a) The effect of COVID-19

At the time of writing (December 2020) the entire entertainment sector continues to be affected by the global COVID-19 pandemic which has led to a very significant loss of work in the industry as a whole. In the light of this the government has brought in tax measures to assist those filing returns for 2019/20 and therefore owing tax and national insurance for that year.

A number of support packages have been put into place which are administered by HMRC e.g., the government’s Self-employed Income Support Scheme (SEISS). Information and advice about the employment support packages, social security and other forms of financial support available as a result of Covid-19 can be found in our Financial Support Guide which can be found on the Equity website – for the current version go to https://www.equity.org.uk/about/coronavirus-advice/available-support-a-quick-guide/ and click on the link to the Financial Support page.

Time to Pay arrangements: HMRC have set up a dedicated COVID-19 helpline to help those in financial distress and with outstanding tax liabilities and may be able to agree a bespoke Time to Pay arrangement. They are also waiving late payment penalties and interest where businesses are experiencing difficulties in paying taxes due to COVID-19. For further information and a helpline number see https://www.gov.uk/difficulties-paying-hmrc and https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by- coronavirus-COVID-19

Payments on account: On 20/03/20 the Chancellor announced that self-assessment payments expected in July 2020 can be deferred until January 2021. This may assist self- employed members paying tax on account to HMRC although deferring payments may not be the best option and it is important to discuss the position with your accountant if you have one. Deferment is not automatic, so we advise members to contact HMRC to request a deferment via your gateway account or call the HMRC COVID-19 helpline on 0800 024 1222. Note that if you have deferred your payments on account and are experiencing difficulty in paying you can investigate setting up a Self-serve Time to Pay Scheme (see below).

New Self-Assessment Self-Serve Time To Pay Scheme: If you deferred paying your July 2020 Payment on Account, you will need to pay the deferred amount, in addition to any balancing payment and first 2020/21 Payment on Account, by 31 January 2021. This may be a larger payment than you usually pay in January. If you are unable to pay your Self-Assessment (SA) bill in full by 31 January 2021, you can set up a Time to Pay payment plan of up to 12 months online with HMRC via your Government Gateway Account. For more information, see https://www.gov.uk/difficulties-paying-hmrc 2

Equity Tax and NIC Guide 2019/20 – updated January 2021

Deferral of VAT payments: On 24 September 2020, the Chancellor announced that businesses who deferred VAT due from 20 March to 30 June 2020 will now have the option to pay in smaller payments over a longer period. Instead of paying the full amount by the end of March 2021 smaller, interest free payments can be made up to the end of March 2022. If you are unable to make these payments, you may also be able to make a time to pay arrangement with HMRC. For more information, see https://www.gov.uk/guidance/deferral-of-vat- payments-due-to-coronavirus-covid-19

Tax Treatment of Self-Employed Income Support Scheme (SEISS): More information on the SEISS scheme can be found in our Financial Support Guide [see current version at Equity - Tax and Welfare ]. For the purposes of the tax return, please note that the SEISS grants count as trading income and so should be included as part of your turnover. They will also count in the computation of self-employed national insurance due. A specific box will be included on the 2020/21 return for the recording of SEISS grants received.

Interaction of SEISS with Social Security payments: For members claiming Universal Credit or planning to do so in the near future, it is important to note that SEISS grants count as earnings for UC purposes. Given that, it may be better to delay a claim until after you have received a SEISS grant so that the grant is not taken into account in the first UC assessment period. For more information on this see: https://www.equity.org.uk/about/coronavirus- advice/available-support-a-quick-guide/ and click on the link to the Financial Support page.

Tax Treatment of other payments received during COVID

Payments from theatrical charities – we would expect these to be viewed as non-taxable by HMRC. The general rule is that voluntary payments made to help with personal day to day living expenses are not taxable whereas payments made expressly to assist you in maintaining your business would be.

Payments from public bodies – emergency funding from Arts Council England or Creative Scotland or similar bodies are likely to be taxable as they are made to assist your business and so would be seen as trading receipts. But in view of the fact that there is still some level of uncertainty around this at the time of writing, our current advice to members would be to add a note in the additional information box to explain what the payment was and to say this has been included on the assumption it is taxable. More information will be in the next edition of this tax guide for those filing for tax year 2020/21.

COVID-19 Loan Schemes: the usual position for sole traders is that the loan would not count as a taxable receipt and tax relief would be available on the loan interest. Those with personal service companies should consult their accountants.

b) Making Tax Digital (MTD) update

We reported in the previous edition that the government had shelved plans to bring in Making Tax Digital for income tax purposes. This would have included quarterly reporting of income

Equity Tax and NIC Guide 2019/20 – updated January 2021 and expenses using approved software. At the time of writing (December 2020) plans to introduce this have been shelved until 2023. Note that it is planned these rules will apply to all those with an annual turnover exceeding just £10,000 per year. Equity continues to have many concerns about these plans and we want to see the threshold level raised, a proper impact assessment and some form of exemption for the entertainment industry because of our member’s varied and unpredictable work patterns which will greatly complicate such frequent reporting.

There will, however, be some members who may wish to investigate further the possibility of digital reporting and it is possible to use the new system on a voluntary basis – for more information on this see: https://www.gov.uk/government/collections/making-tax-digital-for- income-tax

Bear in mind however that this may lead to an increase in accountancy costs as you would need to be sending quarterly updates of income and expenses to HMRC.

Phase 2 of MTD for VAT purposes was due to commence in April 2020 but was postponed at the last minute due to the pandemic crisis and is now expected to commence in April 2022. This will involve filing VAT returns through the HMRC portal using the approved digital transfer methods. Until then it will still be possible to copy and paste e.g. from Excel spreadsheets. For more details see: https://www.gov.uk/government/publications/vat- notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat Part 4.2.1 on Digital Links is of particular relevance.

c) IR35 – roll out of off-payroll arrangements

Another piece of legislation postponed to 2021 was the roll out of IR35 to the private sector. IR35 refers to a Revenue briefing which appeared in 2000 to address cases of ‘disguised employment’ i.e. those operating via personal service companies (PSCs) who were seen as avoiding payment of tax and Class 1 national insurance through adopting a company structure when they were in fact employees for tax purposes.

What this roll out will do is transfer the liability for assessing whether IR35 should apply from the individual’s PSC, which has had the responsibility for making the assessment until now, to the private sector engager where that engager is classed as a medium or large-sized company (this is defined as meeting two of the following three criteria – having an annual turnover of more than £10.2 million, a balance sheet total of more than £5.1 million and more than 50 employees).

From next year private engagers such as ITV in TV or the National Theatre in theatre will need to make an assessment of the correct tax status of those they are engaging via personal service companies. In the vast majority of cases where standard Equity contracts are involved we believe this should result in a finding that IR35 should not apply as if the company were removed the tax status of the individual would be one of self-employment i.e. they would not be judged to be employees of the relevant engager e.g. the BBC.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Engagers contracting with those who have personal service companies will need to record a Status Determination Statement (SDS) explaining how they have checked the correct tax status of the artist. As stated, we would expect that Statement to confirm self-employment in the vast majority of cases. We would also expect engagers to be using the newly agreed tax guidance for the sector (see section below) in making that judgement and not relying upon HMRC’s Check Employment Status for Tax questionnaire (CEST). This is because the CEST has known deficiencies when assessing the status of performers because of the way certain factors in the questionnaire are weighted which do not take into account the work patterns in our industry. For more on the CEST see section below. If you find yourself being classed as an employee for an engagement please discuss urgently with your accountant or let us know by emailing [email protected] and copying in [email protected]

Where the private sector engager is not medium or large-sized, it will remain the responsibility of the member’s own PSC to make suitable status assessments using the IR35 rules and guidance and importantly the tax guidance specific to the entertainment sector (see section below).

Note that IR35 has already been rolled out to the public sector (from April 2017) and so is already being operated by engagers like the BBC.

The IR35 rules only apply if you are operating through a PSC. This is a complex area of tax law and we are assuming that those members operating a PSC have sought specialist accountancy help from an accountant familiar with the issues of the entertainment industry. We maintain a list of such accountants which we are happy to send to members.

For more information on the roll out for IR35 see: April 2021 changes to off-payroll working for intermediaries - GOV.UK (www.gov.uk)

d) New tax guidance for the entertainment sector

The new tax guidance for the entertainment sector has been agreed and this went live on 3rd September 2020. This is essentially a status tool setting out the rules for determining whether different groups e.g. actors, stage managers, choreographers, should be classed as employed or self-employed for tax purposes. It is important to note that this guidance helps with tax status – status for employment rights purposes may differ e.g. many members are self- employed for tax but ‘workers’ as defined under section 230 of the Employment Rights Act 1996 for employment rights purposes. With tax there are only two possible status positions – employed and self-employed whereas in employment law you could be self-employed, a worker or an employee.

The new guidance confirms the status quo which is that performers in general are self- employed for tax purposes in the view of HMRC. The new guidance is the result of three years of negotiations with Equity and the industry and it contains more detailed guidance on several areas including the position of directors, designers and choreographers and role players. It

Equity Tax and NIC Guide 2019/20 – updated January 2021 should also be used to make determinations of status under IR35 above but as already emphasised IR35 rules only apply to those operating through PSCs.

For the main parts of the guidance, see the following links:

ESM4121 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (covers actors and other performers)

ESM4121A - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (case study examples)

ESM4122 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (relevant caselaw)

ESM4124 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (covers stage management)

ESM4125 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (covers role players)

ESM4126 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk) (covers directors, designers and choreographers)

The awareness of the standard guidance varies with engagers and particularly with non- standard contracts they may not even be aware that it exists. It is therefore always worth members bringing it to their attention and stressing that this is the view of HMRC as well as Equity’s view. As stated above, if you are experiencing problems around tax status discuss with your accountant or contact us on [email protected] with [email protected] copied in.

e) Check Employment Status against Tax (CEST) Questionnaire

HMRC have put together a questionnaire to assist engagers and taxpayers in arriving at tax status assessments. The questions look at the typical tax status factors and operates in a multiple choice format – the latest version updated in January 2020 can be found here: https://www.gov.uk/guidance/check-employment-status-for-tax

However, it is important for members to note that the CEST has a number of shortcomings when it comes to assessing the status of performers. This is because it attributes importance to factors like right of substitution and provision of equipment which are often indicative of self-employment but not so in the entertainment industry where they are better regarded as neutral factors in most cases. In addition, the CEST takes a very standardised approach to issues of control which can give misleading outcomes and gives limited emphasis to the pattern of work (not just the contract under consideration) which is important when looking at a performer’s tax status. To that extent it is crucially important for members and engagers to consider the specific guidance (ESM4121 and other sections as above) as the primary

Equity Tax and NIC Guide 2019/20 – updated January 2021 guidance when considering tax status in our sector as the CEST in isolation may give a misleading outcome.

f) Impact of Brexit on tax and social security arrangements

The exit of the United Kingdom from the EU from January 2021 will of course have implications for many members in terms of their free movement to take up work within the EU. So far as tax is concerned, the Double Taxation treaties in place with EU countries depend on OECD treaties and so the rules about offsetting withholding tax paid abroad should continue to apply (see Foreign Taxation below, page 12). We are checking to see if there are any other significant tax changes likely to affect members.

The position is less certain with social security payments made in the EU – this will depend on whether individual countries decide to apply the ‘detached worker’ rules – see update on this below (National Insurance Contributions Abroad – page 38).

Please note: Whilst the material contained in this Guide is believed to be accurate, no responsibility for loss occasioned to any person acting, or refraining from acting, as a result the material contained herein can be accepted by Equity. The material contained in this Guide is believed to be accurate at the date of publication, January 2020, but will be subject to change. All updated versions of the guide can be found on the Equity website. See Equity - Tax and Welfare

Equity Tax and NIC Guide 2019/20 – updated January 2021

2. TAX

Most Equity members are taxed as self-employed earners. There are some exceptions to this but for the vast majority of our members, self-employed categorisation will be appropriate. Performers have historically been taxed as self-employed. Being self-employed for tax means you are able to claim business expenses against your income.

The UK tax year begins on 6th April and ends on the following 5th April.

a) REGISTERING AS SELF-EMPLOYED

You can register for self-employment online or by phone.

1) To register online go to https://online.hmrc.gov.uk/shortforms/form/CWF1ST?dept- name=CWF1&sub-dep. This link takes you to a structured email which you can complete and send in online. Alternatively, go to the gov.uk website, enter Register for Self-Assessment in the Search Box then follow the links to register as a sole trader.

2) To register by phone contact the Her Majesty’s Revenue & Customs (HMRC) Helpline on 0300 200 3500.

When you register for self-employment, you will be registering for both self-employment tax (collected though the self-assessment regime) and self-employment National Insurance Class 2/4 NICs (for more information on NICs see page 30 of this guide onwards).

You should register as soon as you commence your self-employment. It is the commencement of self-employment activity that triggers the requirement to register, not whether you earn over the Personal Allowance (see page 23) or make a profit or loss. This is important as some members mistakenly believe that there is no obligation to register if you are making low profits. You do not have to wait to register until you have paid self-employed work – it is sufficient if you are seeking work and incurring expenses e.g. attending auditions.

However, there are circumstances where you may not have to register if your profits are lower than £1,000 gross (before expenses) in the tax year – see Trading Allowance on page 23 for more information on this.

The latest you should register is by 5th October following the tax year in which you commenced self-employed activity. For example, for tax year 2019/20, the latest you should register is 5th October 2020. If you register late you may have to pay a penalty. Our advice is to register as soon as you commence your self-employment so that you can claim the expenses you incur against your taxable income and avoid any penalties.

When your first tax returns are due:

- If filing online: by 31st January following the tax year in which you registered for self-

Equity Tax and NIC Guide 2019/20 – updated January 2021

employment. For example, if you commenced self-employment in tax year 2019/20, you would need to file your first tax return by 31st January 2021. - If completing a paper return: by 31st October following the tax year in which you registered for self-employment. For example, if you commenced self-employment in tax year 2019/20 you would need to file your first tax return by 31st October 2020.

If you fail to register as self-employed by the by 5th October following the tax year in which you commenced self-employed activity, you will usually not incur a penalty as long as you ensure that you have registered for self-employment and submitted a return by the relevant tax return deadline.

Once you have registered as self-employed for tax, HMRC will set up a Gateway Account for you and issue you with a pin number. This will enable you to access your digital tax records and you will then receive your Unique Taxpayer Reference Number (UTR Number), which is ten digits long. You will then be part of the Self-Assessment regime.

Once registered, you will be sent a letter by HMRC every April telling you to complete a tax return. If you complete the tax return online, HMRC’s software calculates and notifies you how much tax you owe immediately online. If you complete a paper tax return and return it to HMRC by 31st October, HMRC will calculate the tax you owe and notify you of this by letter in advance of the deadline for payment.

When you register as self-employed, your self-employed tax status will apply to your performance work only. If you are also employed in PAYE employed earner work, for example in a bar or restaurant, you will remain employed in this work; tax and NIC’s are usually deducted from your wages, depending on how much you earn. It is therefore possible to be both self-employed and employed at the same time, or have two separate self-employments i.e. actor and teacher. Employments and self-employments are listed separately on the self- assessment forms.

b) KEEPING RECORDS

Once you have registered as self-employed you are obliged to:

1) Keep records of all your income and expenditure so you can complete your tax return And 2) Set money aside in order that you are able to pay tax and NIC when it is due.

It is a legal requirement that you keep records for at least five years after the normal filing deadline of 31st January so you must be organised and thorough. For example, for a 2019- 2020 tax return filed on or before 31st January 2021, you must keep your records until 31st January 2026. If a tax return was sent to you or filed very late, you may need to keep records for longer.

In the event that you are investigated by HMRC, you will be asked to verify your income and expenditure. In order that you are able to do so it is essential that you keep wage slips,

Equity Tax and NIC Guide 2019/20 – updated January 2021 remittances, invoices, bank statements, etc. and all receipts relating to the expenses you claim against tax. You may find it helpful to file receipts every month into separate envelopes so that you are able to locate and produce receipts easily. A thorough filing system will also assist you in completing the self-assessment return. It is not enough to keep scans or records of the receipts – you will need the originals. If you have paid for things online e.g. via PayPal you should keep a print out of the receipts for payment.

You will need to keep up-to-date and accurate records of your income and expenditure. You may decide to use an electronic spreadsheet.

You should be able to identify the sums paid into your bank account, including gifts. It is important to be able to differentiate earnings from other income if you are investigated by HMRC. It is also advisable to keep a work diary to record information about your various jobs i.e. period under contract, how much was paid, etc.

Keeping accurate records is particularly important in the case of “dual purpose” expenses (see above) where you need to be able to differentiate very clearly between business (allowable) expenditure and personal (non-allowable).

We advise members to have a look at HMRC’s booklet on record keeping - see http://www.hmrc.gov.uk/record-keeping/index.htm. It is important that you are fully aware of the records you are required to keep as failure to keep adequate records can result in a penalty.

The HMRC have produced a webinar on the subject of record-keeping at http://www.hmrc.gov.uk/webinars/self-employed.htm. At this page scroll down to the section on Record Keeping.

The UK tax year begins on 6th April and ends on the following 5th April.

c) COMPLETING THE TAX RETURN

For help completing your tax return and for general advice about self-assessment you may wish to contact HMRC’s helpline on 0300 200 3500. However if your enquiry relates to an issue to do with working in entertainment or being a performer, we would advise that you contact Equity’s Tax and Welfare Rights helpline in the first instance - see Section 4 Contacts below, p.41.

If you have a question about how HMRC’s online self-assessment system works or a technical issue when completing your online tax return, we recommend you contact HMRC’s Online Services Helpdesk on 0300 200 3600.

Equity Tax and NIC Guide 2019/20 – updated January 2021

As noted above, once registered you will be sent a tax return to complete each year or a letter telling you to complete a tax return. You complete a tax return so that HMRC can work out how much tax and national insurance you are liable to pay. You can complete a paper tax return or file your tax return online. Once registered, you must file a return no matter how much you earn.

You do not need to engage an accountant to complete the tax return. Self-assessment has been designed to be as straightforward as possible so that individuals can do it themselves. However, you may wish to engage the services of an accountant and, if you do, it is advisable to get one who has experience of the accountancy needs of people working in the entertainment industry.

Equity provides a list of accountants that is available to members on request or you can find this on our website in the members’ area of the Equity website under Tax and Welfare.

Paper tax return

The paper tax return is made up of different sets of Pages to reflect your individual circumstances. You will fill out a general set of Pages (SA 100) and a set of Self-Employment Pages (SA 103). You may also have to complete any other sets of pages that are relevant to you, such as the Employment Pages (SA 102) or Foreign Pages (SA 106).

It is on the self-employment pages that you declare your self-employed income and expenditure from the entertainment industry. There are two sets of self-employed pages:

• SA103S – Self-employment (short) if your turnover is below £85,000 (2019/2020) • SA103F – Self-employment (full) if your turnover is above £85,000 (2019/2020)

The short pages are much simpler to complete as they are designed for taxpayers who have straightforward tax affairs. Some Equity members who have complex tax and national insurance affairs may have to complete the full self-employment pages even though their turnover is below £85,000.

If you also work as an employee (i.e. you have a separate employment) you will need to complete the Employment Pages (SA102), on which you will declare your employment income and tax paid based on the P45 or P60 as supplied by your employer.

Online tax return

The online tax return is made up of different sets of Sections. There is no short or full version of the self-employment pages. Instead the online system feeds you the sections you need to complete, including the Employment and Foreign pages.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Cash basis and Accruals basis

Most small unincorporated businesses i.e. sole traders, use the cash basis under which you record income and expenses in the accounting period in which payment is actually received or expenditure incurred. This is because it is simpler to use from an accounting perspective and does not involve having to make more complex adjustments. In order to use the cash basis you need to elect to do so in the tax return, and your turnover for the year needs to be less than the VAT registration threshold (£85,000 for 2019/2020).

Under the accruals method you look at income arising when it is earned not when it is paid and expenses are recorded when the expense arises. So, for example, a payment of insurance is allocated in the accounts to the period the insurance covers or a payment of electricity may need to be estimated. If you are using the accruals method we strongly advise that you use an accountant as depending on the transaction involved it can be complicated to make the necessary adjustments.

The following link gives a clear explanation of the cash basis: https://www.gov.uk/simpler-income-tax-cash-basis/getting-started

Note: if your turnover is more than double the VAT threshold for the year (currently £170,000), you must revert to using the Accruals Basis if you are using the Cash Basis.

We point out below the effect of using the cash basis in relation to expenses and capital allowances and losses and it is important to note these when completing your return.

d) FOREIGN TAXATION

Foreign tax may involve very complex accounting issues, such as tax residency. We would strongly advise that you seek specialist accountancy advice if you work abroad frequently.

Performers who work abroad are usually subject to a special regime of withholding tax which applies to entertainers and sportsmen. These operate at various rates which may be more or less than the standard UK basic income tax rate (currently 20%). This regime is contained in various Double Taxation Treaties with other countries around the world and these typically have a standard Article which allows the taxation of entertainers in the countries where they work for performance work carried out in that country (except where you are operating through an intermediary i.e. your own personal service company or have a permanent establishment in that country). This is opposed to the usual rule that you are taxed in the country where you are actually tax resident i.e. in this case the UK. For an example of the standard Article see Article 17 in this link to the UK/France Double Taxation Treaty: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_ data/file/496672/france_dtc_-_in_force.pdf

If you work abroad and pay foreign tax, you will need to complete the Foreign Pages (paper form SA106) or Foreign Section (online return). If you pay tax abroad and complete the

Equity Tax and NIC Guide 2019/20 – updated January 2021

Foreign Pages/Section you may qualify for Double Taxation Relief against your UK tax liability to take into account the tax you have paid abroad. In brief, Double Taxation Relief is available when there is a Double Taxation Treaty in place between the UK and the country in question – the relief enables you to offset your foreign tax liability against your UK tax liability for the equivalent period and obtain a Foreign Tax Credit. If your payments straddle two different UK tax years, then you would need to allocate these to the relevant UK tax year when completing the returns. You may not be able to obtain full tax relief where the foreign tax payable exceeds the equivalent UK rate.

Example

Peter worked in Germany for three months in tax year 2019/2020 on an entertainment contract earning 5,000 euros. He was subject to German withholding tax at a rate of 30% and other deductions including German social security payments. He fills in the SA106 Supplementary Pages in the tax return entering the German income and tax paid converted into £ sterling. He also enters the gross income in the SA103 self- employment pages as part of his gross turnover again converted into £ sterling and records the expenses incurred there as well in £ sterling. This will mean that any German tax paid will be offset against his UK tax liability - in this case as he paid 30% in Germany he will owe no tax on this income in the UK although it will mean that 10% is not recoverable. This assumes he is a basic rate taxpayer – if he is a higher rate taxpayer he may still owe tax on that income in this country.

As per the example above you will need to convert the income, tax paid and expenses into £ sterling for the relevant periods when income was received or expenses were incurred. HMRC’s exchange rate converter can be found at the following link: https://www.gov.uk/government/collections/exchange-rates-for-customs-and-vat

If you work abroad you may also find yourself subject to the equivalent of national insurance deductions – for further information on this and how to avoid them see page 36 but note that the current position on this is still unclear at the time of writing (December 2020) due to Brexit.

We would suggest that members operating through a Personal Service Company seek professional advice if working abroad regularly to work out the most tax-efficient way of doing so.

Alternatives to claiming under the Double Taxation Treaty

There may be circumstances where you may not be able to make use of the foreign tax credit e.g. where your taxable earnings in the UK in that tax year are less than your tax-free personal allowance meaning that no tax is due on your UK income. In those circumstances where it would produce a tax saving you can deduct the foreign tax paid from the foreign income in working out how much of the income is taxable in the UK.

Equity Tax and NIC Guide 2019/20 – updated January 2021

For further information on this see the section headed Deduction Relief in the following link: https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on- income-hs263-self-assessment-helpsheet/relief-for-foreign-tax-paid-2020-hs263

Note that withholding tax paid on your foreign earnings cannot normally be treated as an allowable business expense except in exceptional circumstances.

You may be able to get a refund of withholding tax paid abroad in some circumstances but this will often involve filing a tax return in the country in question. We would recommend getting specialist accountancy advice if you are planning to do that.

For further technical information about Double Taxation Relief you should refer to HMRC’s Double Taxation Relief Manual available online at: https://www.gov.uk/hmrc-internal- manuals/double-taxation-relief

IMPORTANT NOTE: Impact of Brexit – the Double Taxation treaties between the UK and other countries are governed by OECD rules and so will remain in force after Brexit. However, exemptions from EU national insurance payments may be affected (see p.38-40).

If you have paid foreign tax in a tax year you will need to complete the full self-employment return (SA103 (F)) rather than the short version (SA103 (S)) if you are filing a paper (hard copy) return.

e) EXPENSES

Equity has consistently campaigned for your right to be categorised as self-employed for tax purposes. Being self-employed for tax enables you to claim allowable business expenses against your gross earnings thereby reducing your taxable self-employed income. In some cases, for example, where you have purchased essential equipment for the business, you may be able to considerably reduce your tax bill through being able to operate as self-employed. Many of our members incur substantial expenditure pursuing their self-employment and so this is an essential element to claim.

Note: Turnover are profits before any deductions, net profits are your net profits after deduction of allowable expenses, taxable profits your profits after any further adjustments including losses brought forward.

So what can you claim as expenses against income?

The law says that expenses incurred wholly and exclusively for the purposes of the trade are allowed against self-employment income (section 34, ITTOIA – Income Tax (Trading and Other Income) Act, 2005). This means that reasonable expenditure incurred on items exclusively related to your self-employment should be allowed by HMRC e.g. ballet shoes, advertising, accountants’ fees, etc.

This is set out clearly in the tax legislation which states:

Equity Tax and NIC Guide 2019/20 – updated January 2021

34 Expenses not wholly and exclusively for trade and unconnected losses:

(1) In calculating the profits of a trade, no deduction is allowed for— (a) expenses not incurred wholly and exclusively for the purposes of the trade, or (b) losses not connected with or arising out of the trade

However, many items of expenditure may have a dual purpose - a business and private/personal element or benefit i.e. haircuts, make up, phone bills, etc. As a general rule, the business proportion of such items of dual purpose expenditure can be claimed against tax, provided that it is possible to apportion a business element and it is reasonable to do so. Again, the tax legislation makes clear that members can do this:

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

There are some exceptions to this general rule as determined by the courts, but generally a fair business proportion can be claimed. You will need to be able to justify the business element claimed if you are investigated by HMRC so you should claim a reasonable and accurate amount. We comment further on “dual purpose” expenses below.

IMPORTANT NOTE: One practical suggestion for taxpayers who wish to claim expenses but are concerned as to whether they are allowable would be to include them on the self- assessment tax return and then make a disclosure in the “additional information” box explaining the basis for the claim. It would then be for HMRC to challenge if they felt the claim was inappropriate but the taxpayer would be protected from any potential penalty charges in those circumstances.

Commonly claimed expenses

The following list outlines items of expenditure claimed by many of our members. It has not been agreed by HMRC, but we have been advised that the following expenses could be allowed against tax depending on the circumstances of the claim. However, it all depends on the individual circumstances and facts and so this list is by no means definitive.

• Accountancy and other professional fees. • Administrative costs including stationery, postage, photocopying and other office costs. • Advertising e.g. Spotlight and agency books. • Agents’ and Managers’ fees and commission on same. • Awards and bursaries * see note below • CD’s, DVD’s, downloads, books, scripts, sheet music, etc. • Clothing * see note below • Cosmetic surgery * see note below • Costume and props (including repair, laundry and cleaning). 15

Equity Tax and NIC Guide 2019/20 – updated January 2021

• Equity subscriptions. • Gym membership * see note below • Insurance * see note below. • Maintenance of instruments and insurance. • Make-up and hairdressing which is clearly specific to work * see note below • Motoring expenses * see note below • Photographic sittings and reproduction. • Professional publications e.g. The Stage, Broadcast, PCR, Radio Times. • Research Costs • Start-up costs * see note below. • Telephone including landline, mobile phone and internet costs. • Theatre and cinema tickets relevant to your self-employment. • Travelling expenses for attending interviews and auditions * see note below. • Travelling and subsistence on tour if supporting a permanent home * see note below. • Tuition and coaching for dancing, singing, speech, etc. *see note on Course Fees below. • Use of home as office * see note below. • Website costs.

Private Expenditure (non-business related expenditure) such as normal household expenditure is not allowable expenditure and you cannot claim it to reduce your taxable income.

You may also be able to claim Capital Allowances on items which you are going to use in the business for a prolonged period such as computers, cars and other plant and machinery. Prolonged period in this context means for more than one year.

IMPORTANT NOTE: if you are operating on the cash basis you can only claim capital allowances for cars (we explain this further on p.22).

Additional Notes

Awards and Bursaries

Members often ask about the tax treatment of awards and bursaries. Whether an award is taxable or not depends on each individual case but as a general rule it will count as part of an individual’s trading income if that individual is registered with HMRC and the award was solicited. In this context, solicited means something you have applied for or someone has applied for on your behalf. The general guidance on this can be found at: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40451

Specific guidance on Arts Council grants and bursaries can be found at: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim50200

Equity Tax and NIC Guide 2019/20 – updated January 2021

This is a complex area and you should seek further advice where there is doubt about how your award should be taxed.

Clothing

Claims for costumes that are specific to work are allowable. As a general rule, a self-employed person cannot claim for a wardrobe of everyday clothing. This was established in Mallalieu v Drummond [1983] and consequently HMRC is likely to disallow clothing costs which could be worn every day. However, in practice, performers incur expenditure on clothing which could be regarded as ‘everyday’ as opposed to ‘costume’, in order that they are able to attend auditions in character.

Many performers build up a professional wardrobe of clothing which forms part of the ‘tools of the trade’ for use in auditions and it may be possible to claim such costs provided this clothing is not intended for any personal use as well. Despite Mallalieu v Drummond it may be possible to persuade an HMRC Inspector to allow a claim for such costs where clothing is bought for business purposes and not intended to be worn as part of your everyday personal wardrobe. If such claims are made it would be your responsibility as a self-employed taxpayer to justify this expenditure as allowable if your tax return is checked. The guiding principle is that the clothes were purchased for performance purposes only.

Cosmetic surgery

This is an item frequently claimed by members. In order to claim for cosmetic surgery you would need to establish firstly a business need for the work done and secondly that you would not have had the work done were it not for your profession. In other words, a deduction will not be allowed unless you can disprove the existence of a private motive. So you may, for example, need teeth straightened out because of frequent close-ups in your T.V. work. You would need to show there is a professional reason to have your teeth straightened and that it does not amount to a private wish. HMRC’s guidance states that if the performer is able to show that their cosmetic surgery has been incurred solely for professional purposes then it may be allowed – see: www.hmrc.gov.uk and enter BIM50160 in the Search Box.

Professional training

The cost of workshops or other forms of ongoing professional training are allowable if they are designed to develop or refine skills that you already have or if you have to acquire certain skills in connection with a particular role. This area could include things like workshops, voice coaching, acting classes which build on existing skills.

But note that HMRC will disallow costs which they see as putting you in a position to trade e.g. drama school fees or the cost of an MA. This can be a difficult area so seek advice if need be.

Gym expenses

Equity Tax and NIC Guide 2019/20 – updated January 2021

Many members seek to claim the cost of gym membership as an allowable expense but HMRC are becoming increasingly strict about allowing this due to the fact that it is health related and therefore not wholly and exclusively for business purposes (see www.hmrc.gov.uk and enter BIM 37940 in the search box). It may be possible to claim in circumstances where your performance work is highly physical and there is a strong business case to justify gym membership e.g. circus performers, physical theatre but in general it is best to exercise caution in this area.

Insurance

If this is taken out to cover yourself/the business then it will be allowable expenses, e.g. public liability insurance (PLI). Note that PLI is included as part of your Equity membership. Any other insurance that is wholly and exclusively for business purposes will be deductible.

Make-up and hairdressing

Claims for ‘grooming’ costs are also frequently claimed (hair, make-up and so on) where there is a clear link to business purposes. Again the onus will be on the taxpayer to justify the business purpose of such expenses. HMRC will normally allow for a proportion of these costs although they are becoming more restrictive in what they will allow under this heading and have amended their guidance to exclude claims for ‘grooming’ in relation to personal appearances e.g. at film premieres. To be confident such costs will be allowable they would need to relate to specific performance work or auditions.

Medical expenses

Medical expenditure is not generally allowable – HMRC’s view is that there will always be a personal purpose in wishing to enjoy good health (see www.hmrc.gov.uk and enter BIM37940 in the Search Box). There may be arguments you can advance to get certain medical expenses allowed but there has to be very strong link to work and any benefit to you as a human being is simply an unavoidable effect. However, there are limited circumstances in which such expenses may be allowable where it is the particular demands of the job which necessitate the treatment e.g. where you may need regular physiotherapy due to the physical nature of the role. In those cases you can argue that the expense is laid out wholly and exclusively for the purposes of the trade or profession and any benefit to you as a human being is only an unavoidable effect. However, each individual case is different and further advice should be sought where you are seeking to include medical expenses.

Motoring expenses

There are two methods of deducting your business motoring expenses which you can choose between:

1) Claiming an amount for each business mile using HMRC fixed mileage rates (Approved Mileage Payment Allowances), provided certain conditions are met – these are you must be a sole trader, must not have claimed capital allowances before for that vehicle

Equity Tax and NIC Guide 2019/20 – updated January 2021

and only claim business mileage for that vehicle. See https://www.gov.uk/simpler- income-tax-simplified-expenses/vehicles

HMRC’s fixed amounts to use are as follows (for 2019/2020):

• Car or van 45 pence per mile for the first 10,000 miles 25 pence per mile thereafter • Motorcycle 24 pence per mile

Note: if you are using this flat-rate method for calculating your motoring expenses, you cannot then claim capital allowances for cars (see page 19).

2) Claiming your actual business motoring expenses, calculated using detailed records of business and private mileage to apportion your recorded expenditure. Motoring expenses commonly include an amount for road tax, MOT, insurance, repairs, fuel and roadside assistance membership.

Note: once you have started using method 1) or 2) for that vehicle you cannot then switch it but should keep using it. If you acquire a new vehicle you can then switch the method.

Bikes

Many members use bicycles to get to and from work engagements. HMRC were allowing a 20 pence per mile fixed mileage rate for these until 2013 but this has now ceased for the self- employed (although employees can still claim). Instead you can claim for the repairs and maintenance of the bicycle disallowing the appropriate percentage for personal use. The cost of purchasing the bike can be treated as an expense again with the appropriate disallowance for personal usage.

Start-up costs

Those performers who have recently registered as self-employed may claim a reasonable and limited amount for start-up costs for the period prior to registration up to a period of 7 years. Start-up costs for member could include items such as subscriptions and publicity stills and also the equipment you are intending to use in the business with a disallowance for personal use i.e. only claim the business use percentage. For more information, see: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46351

Travelling and subsistence expenses

You can claim expenses for travel which is incurred wholly and exclusively for business purposes. This can include the cost of using your car, van, motorcycle or cycle for business purposes. The sort of travel which would normally be deductible includes travel from home to auditions, rehearsals and performance as well as research trips.

With Oyster Cards, Transport for London can issue weekly travel print outs which show each

Equity Tax and NIC Guide 2019/20 – updated January 2021 trip enabling you to identify the ones which are business-related.

You can also claim the costs of travelling abroad to work or for auditions together with reasonable accommodation costs.

With food and drink, HMRC’s guidance makes it clear that reasonable costs may be allowed for subsistence and accommodation where the trade is by its nature ‘itinerant’ - go to https://www.gov.uk/hmrc-internal-manuals/business-income-manual and put BIM37670 in the Search Box. The legal basis for this is the Income Tax (Trading and Other Income) Act 2015, s.57A. HMRC has recognised that performance work is often by its nature “itinerant” in this way. Allowable expenses will include the costs of ‘overnight subsistence’ e.g. digs when staying away from home whilst on tour.

Example

Pedro is on tour on an Equity subsidised repertory contract. He is paid a travel and subsistence allowance under the agreement. He pays £300 per week for his digs and spends about £100 per week on meals. He declares these amounts as part of his self- employment income and claims the corresponding expenses on the tax return.

IMPORTANT NOTE: If you receive a travel and subsistence allowance under an Equity contract or similar, please note that this should be declared as income on the tax return and the corresponding expenses claimed as well. Members are sometimes told these amounts are non-taxable which is incorrect – if in any doubt contact our Helpline.

Use of a home as an office

Many members use their home for various business purposes such as learning lines and other performance activities, contacting agents, researching roles, browsing for castings, bookkeeping, etc.

In general it is possible to claim a realistic and reasonable amount of the rent for using a room or rooms in your rented home for business purposes. Costs might include a corresponding claim for council tax, lighting, heating (gas and electricity), buildings and contents insurance, cleaning and redecoration/repairs to the room used for business purposes.

You can calculate the amount to be claimed one of two ways:

1) Calculate the total amount of costs spent on running the home under the headings given above. Count up the number of rooms in the house (not counting the kitchen and bathroom) and then divide the costs by that number. Then multiply that figure by the number of rooms used in the business. If you do not use the room exclusively for business purposes e.g. it is used part of the time as a bedroom then you will need to apportion between business and personal use e.g. if you only use it for business half the time, divide the figure by two.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Example

Bernard lives in a three-bedroomed flat – he uses one of the bedrooms as an office and an area for practising his performances skills. Without counting the kitchen and bathroom he has a total of six rooms. The room has a desk and a PC in it. He calculates his total monthly costs to be £1200 including rent. This total divided by six (the number of rooms) is £200 which is then multiplied by 1 (total number of room used for business). He therefore claims £200 per month for use of home as business. If he only used the room half the time for business, he would claim £100.

2) Secondly, you could use the HMRC standard rates which are quite modest. These are based on the number of hours per month you spend in the business room so you would therefore need to calculate this based on a log. The monthly amounts are currently:

Less than 25 hours per month £0

25-50 hours per month £10

51-100 hours per month £18

101 + hours per month £26

IMPORTANT NOTE: Once you have chosen one of these methods you need to stay with it as it cannot be changed.

If you are using accommodation where there is no identifiable separate room used for business purposes, e.g. you live in a studio flat or have a room in shared accommodation which is also your bedroom, we recommend making use of the HMRC flat rates above.

It is possible to claim a proportion of mortgage interest for use of home as office but there may be Capital Gains Tax consequences. Any part of a property used exclusively for business purposes will not qualify for Capital Gains Tax Private Residence Relief when the property is sold. However, if the room as office claim relates to a room that is not used exclusively for work, Private Residence Relief should still be available for the whole property.

For further guidance on this, please see www.hmrc.gov.uk and put BIM 47800 in the Search Box.

Capital expenditure

Capital items are items of equipment or machinery which you are intending to use in the business for a prolonged period e.g. cars or computers. In that sense, a prolonged period generally means more than a year.

If you are operating on an accruals basis, you can claim Capital Allowances for these items; if

Equity Tax and NIC Guide 2019/20 – updated January 2021 you are operating on a Cash Basis, you would treat such items the same way as ordinary expenses with the exception of cars for which you can claim Capital Allowances subject to one condition (see below page 21-22).

The way Capital Allowances operate is that you can allow a proportion of the purchase cost against tax either by way of the Annual Investment Allowance (AIA), which is a first year allowance, or Writing down Allowance (WDA) in subsequent years. You can only claim the business proportion of Capital Allowances where you use the equipment for business and private purposes, so you will need to reduce your claim by the amount of your private use.

The AIA provides 100% tax relief on items such as phones and computers for use in the business. In practice, for most sole traders, AIAs cover most of the assets you would use in your business with the exception of cars. This means that the total cost can be set against tax in the year of purchase subject to any apportionment needed to reflect business versus personal use.

AIAs are subject to financial limits – from 1st January 2019 to 31st December 2020 this rate has been temporarily increased to £1 million per annum. You add up the cost of all your capital expenditure (excluding cars) and if the total amount is at the financial limit or less you can claim 100% of it as your AIA which will reduce your taxable income.

Note: as stated, the above rules on Capital Allowances do not apply if you are using the cash basis except in relation to cars (see below).

Cars

The type of Capital Allowance that applies to cars is called a Writing down Allowance (WDA). For cars bought on or after 6th April 2018, the amount of this WDA will depend on your car’s carbon dioxide (CO2) emissions. The WDAs to claim are (depending on the emission levels) first year rate (100%), main rate (18%) or special rate (6%) as per the following table: Description of car What you can claim

New and unused, CO2 emissions are 50g/km or less (or car is First year allowances electric)

New and unused, CO2 emissions are between 50g/km and Main rate allowances 110g/km

Second hand, CO2 emissions are 110g/km or less (or car is electric) Main rate allowances

New or second hand, CO2 emissions are above 110g/km Special rate allowances

For information on cars bought earlier than this, see: Claim capital allowances: Business cars - GOV.UK (www.gov.uk)

Equity Tax and NIC Guide 2019/20 – updated January 2021

To check the C02 emission level of your vehicle go to: http://carfueldata.direct.gov.uk/search-new-or-used-cars.aspx

Remember to reduce your WDA to reflect only the business use (you cannot claim a WDA for the private use of your car).

Example

Emma purchases a second-hand Ford Focus in September 2019. It has CO2 emissions of 167g/km. The purchase price is £2,500 and she can claim 6% tax relief (special rate) on this in the first year i.e. £150. This leaves £2,350 of the cost still to be written off so in tax year 2020-21, she can claim tax relief on 6% x £2,350 (£141).

The Small Capital Allowance Pool enables you to write off in full any items with a written down value of less than £1,000 rather than at the normal written down allowance rate of 18%. This can be done with cars whose value has reduced to below that level.

Note: as stated on page 16, if you are using flat rate mileage allowances you cannot use Capital Allowances to get tax relief on cars.

For more information on the Capital Allowance rules for cars, see pages 10 and 11 of the Tax Return: Self-employment (Full) Notes. Type SA 103(F) notes into the search bar at www.hmrc.gov.uk.

Further information on capital allowances in general can be found at http://www.hmrc.gov.uk/manuals/camanual/ca23500.htm

HMRCs manual on Capital Allowances can be found at www.hmrc.gov.uk/manuals/camanual/Index.htm

They have also produced a webinar on Capital Allowances at: http://www.hmrc.gov.uk/webinars/self-employed.htm and scroll down to the sub-heading Capital Allowances.

Trading Allowance

The government announced a new trading allowance of £1,000 effective from tax year 2017/18.

Where your trading income from all self-employments for the year (gross) amounts to £1,000 or less you will no longer have to declare or pay tax on this income. Consequently, if you are not yet registered with HMRC you may decide not to register. However, you may still wish to register and submit a return e.g. if you want to pay Class 2 national insurance on a voluntary basis to maintain qualifying years for state retirement pension or to pay qualifying contributions for other benefits such as maternity allowance. You may also want to file a

Equity Tax and NIC Guide 2019/20 – updated January 2021 return where you have incurred a loss in order to carry that loss forward to set against future profits. If you do file a return there will be a box on which you can claim the trading allowance.

Note that once you are registered with HMRC you should continue to submit returns even if your profits are less than £1,000 gross in a given year – failure to submit returns in those circumstances could result in penalties for late filing.

If your trading income is above £1,000 you can also use the trading allowance to work out your taxable profits as an alternative to using you actual allowable expenses.

Example

Mia has gross profits from self-employment of £5,400 in tax year 2019/20 and has used up her tax-free personal allowance through her PAYE job. She has allowable business expenses of £850 and chooses to use her £1,000 trading allowance instead which she deducts from her gross profits giving her taxable profits for the year of £4,400.

For more information on the trading allowance go to: https://www.gov.uk/guidance/tax- free-allowances-on-property-and-trading-income

The allowance will also apply for the purposes of computing Class 4 national insurance payable.

IMPORTANT NOTE: if you have more than one self-employment note that by electing to use the trading allowance you are claiming the £1,000 figure as expenses as an alternative to all the expenses from these self-employments. You cannot select which one it will apply to. This could mean you may lose the use of all your expenses – if in doubt, get professional advice.

f) TAX ALLOWANCES AND TAXABLE BANDS

Basic tax allowance: the ‘personal allowance’

Everyone who is tax resident in the UK is entitled to an amount of tax free income each year. This is called the Personal Allowance. You are taxed on income that exceeds the personal allowance amount, which changes each year. For tax year 2019-20, the basic personal allowance is set at £12,500.

Other tax allowances

If you were born before 5 April 1948, blind or are married or have a civil partner, you may have the right to additional tax-free amounts other than the standard personal allowance. For more information see http://taxaid.org.uk/guides/information/an-introduction-to- income-tax-national-insurance-and-tax-credits/income-tax/your-personal-allowance

Equity Tax and NIC Guide 2019/20 – updated January 2021

Reduction/Loss of personal allowance

Your personal allowance reduces once your income in the tax year exceeds £100,000. The reduction is £1.00 for every £2.00 above £100,000 which means it will cease altogether once it reaches £125,000. For these purposes your income is your ‘adjusted net income’ which is income after trading losses, Gift Aid (reduce by the ‘grossed-up’ amount), pension contributions paid gross, pension contributions where tax relief was given at source (reduce by the ‘grossed-up’ amount). To gross up, multiply the sum by 100/80 - for example: Gift Aid donation: £50, Reduce income by 50 x 100/80 = £62.50.

Taxable bands

England, Wales and Northern Ireland

The amount of tax you pay is determined according to taxable bands. In England, Wales and Northern Ireland, the 2019-2020 tax is charged at the following rates:

Name of Band Band Rate of income tax Personal Allowance Up to £12,500 0% Basic rate £12,501 to £37,500 20% Higher rate £37,501 to £150,000 40% Additional rate Over £150,000 45%

Example

You are a single person under 65yrs old. You have a gross profit of £20,000 and business expenses of £5,000, making your net profit £15,000. After deducting your personal allowance of £12,500 you will have to pay tax on £2,500 at 20%. This gives you a tax bill of £500.

Scotland

Scottish income tax has applied since 6 April 2017. For 2019/20, the rates and bands of Scottish income tax are as set out in the table below:

Name of Band Band Rate of income tax Starter £12,501 to £14,549 19% Basic £14,550 to £24,944 20% Intermediate £24,945 to £43,430 21% Higher £43,431 to £150,000 41% Top Over £150,000 46%

For more information about Scottish tax see https://www.litrg.org.uk/tax-guides/tax- basics/what-scottish-rate-income-tax/how-does-scottish-income-tax-work

Equity Tax and NIC Guide 2019/20 – updated January 2021

g) PAYMENT OF TAX

For those who are self-employed, tax is due to be paid by 31st January in the year immediately after the year of assessment. So, the payment deadline for tax due for the tax year 6th April 2019 to 5th April 2020 will be 31st January 2021. Tax becomes payable if your total self- employed income minus allowable expenses and your personal allowance leaves you with a taxable profit figure.

Payments on account

Depending on your taxable profit figure, you may have to make ‘payments on account’. Payments on account are effectively payments made in expectation of tax that will be due, based on taxable income in the preceding year. Until you have paid your first self-assessment tax bill you will not be asked to make payments on account. If you pay £1,000 or more in tax in your first tax year, you will be asked to make payments on account (unless you’ve already paid more than 80% of all the tax you owe e.g. from PAYE earnings).

If required to make payments on account, you would make one payment on 31st January of the year in question, followed by a second payment on 31st July. The payments due on 31st January and 31st July will each usually be 50% of your previous tax bill.

Example

Stephen began trading in 2019/20 and has a tax bill of £2,000 for that year. The tax bill is due for payment on 31st January 2021.

As his tax bill exceeds £1,000 he also has to make his first payment on account for 2020/21 by 31st January 2021 - this is half of the prior year’s tax bill i.e. £1,000. He will also have to pay the tax for 2019/20 (£2000). His total payment due by 31st January 2021 is £3000 (£2,000 for 19/20 and £1,000 towards 20/21).

Going forward, HMRC will assume that his tax bill will remain the same for the following year (£2000). Therefore, a second payment of account of £1,000 for 2020/21 will be due on 31st July 2021.

In January 2022 if his earnings were the same or less than the previous year Stephen will owe no further tax for 20/21 as he has paid the tax owing through the two payments on account. But he will then need to make the first payment on account for 21/22 of £1,000.

IMPORTANT NOTE: This is a very simplified example for illustrative purposes – the amounts owing will of course vary from year to year. You may also have to make payments on account of Class 4 NICs, see Class 4 Section below.

Equity Tax and NIC Guide 2019/20 – updated January 2021

If you are making payments on account but expect your income tax liability to be less than last year, you can make a claim to reduce or cancel payments on account where you believe that payments based on the tax liability for the previous year will lead to an overpayment of tax in the current tax year. However, if you cancel payments on account and then earn in excess of your expectation you will be subject to interest on the tax reduction.

If your earnings are more than expected you will have to pay any additional tax due by way of a balancing charge the following January e.g. in the example above Stephen would have a balancing charge for 20/21 due in January 2022.

IMPORTANT NOTE: because of the payments on account system, you need to plan ahead in the light of future tax bills. It is advisable to set aside at least 20% of your income against future tax and national insurance liabilities.

You can apply to cancel or reduce payments on account through your HMRC Gateway account or contact the HMRC helpline on 0300 200 3500. Alternatively, go to the HMRC website and type SA303 in the Search Box. This will bring up the link to the Reduce Payments on Account form: https://www.gov.uk/search?q=SA303

IMPORTANT NOTE: as stated on page 2, the government has enabled sole traders to delay payments on account during COVID so that July 2020 payments may be deferred to January 2022. Some members how have already filed returns have reported difficulties in seeing the total tax owing as the system has not updated on the summary page. To see total tax owing in January we advise you log on to your account, scroll down to Personal Tax Account, click self-assessment, go to Your Balance and click Bill details. This will hopefully give you an accurate picture of the total amount payable in January. Please feedback to us if this is not the case by emailing [email protected]

The HMRC have produced a webinar on the subject of paying tax. See http://www.hmrc.gov.uk/webinars/self-employed.htm. Scroll down at that link to the video “Paying my self-employment tax bill”.

h) LOSSES

Members may incur a loss if they have a year in which their expenditure exceeds their income – this may occur at any time but especially when you are trying to build up your performance work in the early years.

What you can do with your losses depends on whether you are using the cash basis or the accruals basis in your accounts.

If you are operating on the cash basis, you can only carry losses forward and set them against future profits of the same business – so if you have two self-employments you cannot set off the losses of one against the profits of the other. The maximum period that you can carry forward your loss is 4 years e.g. if you incur a loss in tax year 2019/20 you will need to make a claim by 5th April 2024.

Equity Tax and NIC Guide 2019/20 – updated January 2021

If you use the accruals basis then losses can be carried back or set against other income arising in the same tax year e.g. PAYE income. You can carry back to the previous tax year to set against other income or up to three years if you are in the first four years of a new business. You can also carry losses forward for a maximum of four years as above.

When looking at how to use your losses you also need to bear in mind that you get a tax-free personal allowance every year. If you claim loss relief in a given year you may end up wasting your personal allowance as this allowance cannot be carried forward and must be used in that tax year. Depending on that, it may be better to carry the loss further forward. If you have insufficient profit to cover the whole of your loss, you can carry the balance remaining forward.

Example

Maria records a loss of £2,000 in tax year 2018/19. She elected to carry that loss forward and to use it in tax year 2019/20. In tax year 2019/2020 she has a much better year and records net profits, after allowable business expenses, of £15,000. After applying her personal allowance for 2019/20 this leaves her taxable profits of £2,500 but she is able to set the loss against this so reducing her taxable profit figure to only £500.

Information on how to use losses can be found at the following link from HMRC: https://www.gov.uk/government/publications/losses-hs227-self-assessment- helpsheet/hs227-losses-2016

See also this very clear explanation:https://www.litrg.org.uk/tax-guides/self- employment/working-out-profits-losses-and-capital-allowance/what-if-i-make-loss

i) TAX INVESTIGATIONS AND DISPUTES

Overview

The number of people and businesses being investigated by HMRC has risen significantly in the last few years and those operating in the entertainment sector are not immune to the attentions of the taxman.

In part the increase in enquiries is due to a huge investment by HMRC in technology, including its ‘Connect’ system, which draws together information from many sources and compares it against tax returns filed. Any discrepancies are likely to result in an enquiry, although nothing in fact may be wrong.

Although HMRC has significant powers of enquiry and information gathering, there are at the same time various taxpayer rights and safeguards which members should be aware of, particularly when a dispute with HMRC arises.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Receiving a letter from HMRC

The first point to make is don’t panic if you receive an enquiry notice or similar from HMRC. In many cases, HMRC may simply be checking one or more entries on your tax return and you may even have been picked at random. Once the relevant information has been provided and HMRC is satisfied, their investigation will be closed.

If you have an accountant acting for you, contact them if you receive an enquiry letter. You may also have fee protection in respect of any HMRC investigation, which should cover the professional costs you may incur. If the investigation is still at an early stage you can contact Equity’s Tax and Welfare Rights Helpline for advice (see section 4. Contacts below).

HMRC may use a wide range of terminology for an investigation, including ‘Compliance Check’, ‘Enquiry’ or ‘Intervention’. However, whatever the term used, enquiries are almost invariably undertaken under specific tax legislation, for example for individuals this is S9A Taxes Management Act 1970.

HMRC normally has 12 months from when you file your tax return to undertake enquiries. It is important therefore to check that this time limit has been observed. Outside of this ‘window’, HMRC can only assess additional tax under its ‘discovery powers’, normally only going back 4 tax years. Where the loss of tax is due to carelessness, the time limit extends to 6 years and where the behaviour is deliberate, up to 20 years.

HMRC may open an investigation under Codes of Practice 8 (Tax Avoidance) or Code of Practice 9 (Suspected Tax Fraud). Specialist advice should be sought if you receive such a notice – we have a list of specialist accountants which we can send to you.

HMRC Information Powers

HMRC has wide ranging powers to obtain information from you or indeed third parties, where it can demonstrate that the information is ‘reasonably required’ to check your tax position. If you run a business, then HMRC will be entitled to review your business records. In certain circumstances, it may be appropriate for HMRC to review your personal bank statements or credit card statements.

HMRC also has powers to inspect business premises and records, although that does not extend to private residences, other than parts of a private residence which is used wholly for business purposes. You will normally be notified by HMRC of a visit, although some are conducted without notice. You should always check the ID of any person claiming to be an HMRC officer.

HMRC will normally set a deadline for the provision of any information requested; however, extensions to these deadlines can often be agreed.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Disputes with HMRC

The vast majority of HMRC investigations are settled by agreement. Inevitably, there will be occasions where disagreements between taxpayers and HMRC arise – for example as to whether a particular expense of your business is tax deductible.

In most cases, such disputes can be resolved directly with HMRC, either by correspondence or in face to face meetings. You have a right to have your case reviewed by an HMRC officer who is independent of your case.

Where resolution cannot be achieved, HMRC has a mediation process called ‘ADR’ (Alternative Dispute Resolution) which normally involves an HMRC mediator (again, not connected to your case) who will work with you and the HMRC case officer to try and resolve the dispute. The ADR process has been successful in resolving a large number of tax disputes.

If a dispute cannot be resolved by negotiation or mediation, in nearly all cases you will have the right to have your case heard by a Tax Tribunal. In smaller value cases, the Tax Tribunal will consider your appeal without a hearing – for example where you are appealing against a penalty imposed for filing your tax return late. More complicated cases are heard by Tribunal Judges, who are independent of HMRC.

Penalties

If you have additional tax to pay as a result of an enquiry, HMRC may look to charge a penalty, if they believe you have been careless or deliberately underpaid tax. Penalties can range from 0-100%, depending on the nature of the error and the underlying behaviour. However, innocent errors will not attract a penalty. Where a penalty is chargeable due to carelessness, HMRC might agree to suspend the penalty, which will not be payable if you meet certain conditions relating to your future tax compliance.

Settling Amounts Due after an Investigation

If your investigation results in an amendment to your tax return, you may have to pay additional tax, late payment interest and potentially a penalty. If you are employed, it might be possible for HMRC to amend you tax code to collect the tax due through your salary. Otherwise, HMRC should be able to agree a ‘time to pay’ arrangement depending on your circumstances, although additional interest will be chargeable.

j) TAX TREATMENT OF EQUITY PENSION SCHEME (EPS) PAYMENTS

Many members make payments into the Equity Pension Scheme. This scheme has been in existence since 1997 and is designed and administered by First Act. If you are engaged on an Equity Agreement, whether in theatre, television, film or radio, the Production Company has an obligation to contribute to the EPS on your behalf at rates which are higher than those under the Auto-Enrolment legislation (which obliges UK employers to ensure that they are providing a suitable pension product for their workers). This will ensure that when you work 30

Equity Tax and NIC Guide 2019/20 – updated January 2021 under an Equity contract, you will have one pension receiving all your contributions and not many separate pension pots.

In terms of the tax return, if you are in the EPS then you would be completing the section headed: ‘Paying into registered pension schemes and overseas pension schemes’. Within that section, there is a box headed ‘Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider (called ‘relief at source’). Enter the payments and basic rate tax’

Due to the fact that members are self-employed for tax, employer contributions need to be treated as an enhancement to salary and added to your personal contributions. Therefore when completing the box you need to enter the total of personal and employer contributions paid to the scheme during the tax year plus the basic rate tax relief. You are strongly advised to get a Statement of Contributions from First Act to assist you with this as otherwise it may be confusing – their contact details are shown below.

Example

Sangita paid £1200 into the EPS and her production company paid in £2,400, a total of £3600 in contributions. She enters £4500 in the box on her tax return (£3600 divided by 80 and multiplied by 100) which represents all the payments plus the basic rate tax relief of £900.

Higher rate or Additional rate taxpayers should still complete the box with basic rate relief added. HMRC will then work out any extra tax relief due.

IMPORTANT NOTE: you should also declare the employer’s contribution as part of your overall self-employed turnover. However, when these contributions are paid into your EPS they will receive tax relief at source.

To obtain a Contribution Statement contact First Act on 0208 686 5050 or on email them at [email protected] . There is more information the Equity Pension Scheme on their website at www.firstact.co.uk.

k) STUDENT LOANS

Note that if you are repaying a student loan you should not normally have deductions made for this from any performance work that you do. This is because these should normally be self-employments and any deductions due would therefore be made via self-assessment. This would not apply though if you are in a permanent post when deductions would be made at source on your payslip. Any repayments you have already made via PAYE are taken into account when you complete the tax return. For more information see: https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-return

Equity Tax and NIC Guide 2019/20 – updated January 2021

3. NATIONAL INSURANCE CONTRIBUTIONS (NICs)

Self-employed members are liable to pay Class 2 and Class 4 NICs on their profits. Except in cases of permanent employment e.g. choristers, members will usually be paying Class 2 and Class 4 NICs.

Class 2 NICs are payable through self-assessment. This means that payment will be requested when you fill in the tax return if your net profit figure (total self-employed income minus allowable business expenses) exceeds the Small Profits Threshold (SPT) which for 2019/20 is £6,475. If you are below that figure, you will still have the option of making voluntary payments.

When you pay your tax through self-assessment, your Class 2 NICs liability will be itemised separately but included as part of the final amount due.

a) CLASS 2 NATIONAL INSURANCE CONTRIBUTIONS

For those who are newly self-employed, when you access the link of page 5 of this Guide and complete the structured email or by phone, you will also be registering for Class 2 NICs. Class 2 NICs are charged at a weekly rate of £3.00 (19/20), made by one payment of £156.00 through self-assessment.

What do Class 2 contributions qualify you for?

Keeping up payments of Class 2 NICs is important as they are a low-cost method of ensuring that you get a qualifying year for state retirement pension and other valuable benefits such as contribution-related Employment Support Allowance (if you are unable to work through sickness or injury) and Maternity Allowance (for members expecting a child and unable to access Statutory Maternity Pay).

Making Voluntary Payments of Class 2

It is not unusual for members to have a year of low profits during which they record profits below the level at which Class 2 NICs become payable compulsorily. If you are not paying any or sufficient national insurance through any other means, it is highly advisable to make voluntary payments of Class 2 NICs to protect your national insurance record.

Making voluntary class 2 NICs payments will ensure that you are able to access basic, non- means tested social security (see above). It is particularly important to ensure that you have paid class 2 NIC for the last two tax years prior to the current annual year, in order to obtain Contributory or ‘New Style’ Employment and Support Allowance (ESA) in the event of sudden illness as many self-employed people will not otherwise be entitled to a form of non-means tested state support, such as statutory sick pay, due to their employment status. For more 32

Equity Tax and NIC Guide 2019/20 – updated January 2021 information on claiming Contributory or ‘New Style’ ESA, search for ‘Claiming New Style ESA/JSA’ on the Equity website.

However, you may not need to pay voluntary Class 2 NICs if you have profits below the Small Profits Threshold (SPT) which for tax year 2019/20 is £6,365 net profit. If this applies to you, it may be that you have already be paid sufficient Class 1 NICs through your PAYE work to obtain a qualifying year for State Retirement Pension and other welfare benefit purposes. In this case we strongly recommend that you contact Equity’s Tax and Welfare Rights Helpline for further advice (see section 4 Contacts List below).

To make a voluntary payment of Class 2 NICs you need to ensure that you have indicated this in your tax return by answering the relevant question. This is usually along the lines of ‘If your total profits for 2019–20 are less than £6,365 and you choose to pay Class 2 NICs voluntarily, put ‘X’ in the box.’ In the paper tax return, the relevant box it can be found at box 36 of the short self-employment pages (SA103(s)) or box 100 if you are completing the full self-employment pages (SA103(f)).

Following this, when completing the online tax return, you then need to tick the ‘recalculate button’ in order to get the voluntary Class 2 NICs amount added to your final tax calculation. You should then be provided with instructions on how to pay on the final pages of the tax return.

If this does not work, or you are completing a paper tax return, you would then need to call HMRC’s NIC department on 0300 200 3500 as soon as possible after completing the tax return in order to make the voluntary class 2 NIC payment over the phone. HMRC advise to do this no later than the tax return deadline (31st January).

Combining Class 1 and 2 NIC for a qualifying year

If you have undertaken a combination of employment (PAYE) and self-employment work in tax year, and paid some Class 1 NICs, it may be possible to pay remaining weeks at a Class 2 NIC rate, in order to achieve a qualifying year for NICs purposes.

This option is not automatically made available through the tax return; there is no function that calculates how many Class 2 NICs is required in combination with any Class 1 NICs paid as part of the submission of the tax return. Instead, you will only be given option to pay an entire year’s worth of Class 2 NICs.

To protect your NIC record, and any claim you may need to make, we would recommend that you pay the Class 2 NICs upfront at the time you complete your tax return in the first instance. Also make sure that you complete the PAYE section of the return, inputting any Class 1 NICs paid in the relevant section.

Following this, we recommend that you write to HMRC NIC department to ask them to check to see whether a combination of class 1 and 2 NIC can apply in your case, and for any Class 2 NICs that you may have overpaid to be refunded to you. In order to do this, it is necessary to

Equity Tax and NIC Guide 2019/20 – updated January 2021 enclose proof of all Class 1 NICS paid in the tax year, such as pay slips or a P60 (pay slip summary) certificate with the letter. We strongly recommend that you write to HMRC rather than call the helpline, as the practise of combining Class 1 and 2 NICs requires specialist consideration which the HMRC helpline staff are not able to provide.

HMRC NICs Department address:

National Insurance Contributions and Employers Office HM Revenue and Customs BX9 1AN

Retrospective liability to Class 2 NICs

You may be contacted by HMRC with a bill to pay Class 2 NICs for prior years. Due to various changes in national insurance legislation for entertainers over the years, you may or may not in fact be liable for Class 2 NICs depending on the circumstances of your case. Therefore, we advise you to contact the Equity Tax and Welfare Rights helpline for further advice if you find yourself in this position. Before doing so, we recommend that you obtain a full NIC statement to see what NI contributions and credits have been paid (see below).

Obtaining a full NIC record

We advise that you obtain a detailed copy of your entire NIC record before contacting us. You can only obtain this by contacting HMRC by structured email at the following link https://www.tax.service.gov.uk/shortforms/form/NIStatement or by calling HMRC on 0300 200 3500. NIC information is provided in your government gateway tax account; however, in our experience this is not detailed enough.

You will be asked what tax year date you want the NIC record to start from. We recommend that you put the beginning of the tax year in which you reached your 16th birthday, for example, if you were born in October 1984, you would request that the statement starts from 6/4/2000. This is because people become liable to pay national insurance contributions and/or receive credits post aged 16, and we want to ensure we have a complete picture of your National Insurance history.

Missing years

Your NIC Record statement may recommend that you plug any gaps in your NIC record by making payments of class 3 NIC. This may not be appropriate if you are self-employed, as you are in fact able to make voluntary payments of class 2 NIC instead, which are paid at a much lower rate. In addition, if your NIC record shows that you have paid class 1 NICs for part of a tax year, it may be possible to pay voluntary class 2 NICs contributions for the missing weeks in order to get a qualifying year. This is subject to time limits for paying class 2 NICs (see next section).

We recommend that members with gaps in their National Insurance Record should contact

Equity Tax and NIC Guide 2019/20 – updated January 2021

Equity’s Tax and Welfare Rights helpline for further advice on their individual cases. It is helpful if you email your enquiry to us, with a copy of your full NIC record – see section 4. below, p.38.

Changes to time limits for paying class 2 NICs

HM Revenue & Customs (HMRC) has made changes to extend the time limits for paying voluntary NICs for the 2006/07 to 2015/16 tax years inclusive, to ensure contributors who reach State Pension age under the new State Pension system are not disadvantaged. Those affected will have more time to pay voluntary class 2 contributions, for the years from 2006/07 to 2015/16. The extended time limits apply if you reach State Pension age on or after 6 April 2015 and you make a payment by 5 April 2023.

If you wish to make voluntary payments for that period you will need to pay whatever is the current rate at the time of payment, e.g. for tax year 2020/21 it is £3.05 per week.

Again, we would advise members to first obtain a full NIC record to see what NI contributions or credits have been made, in order to then establish what class 2 NIC payments are required in order to plug any gaps, then contact Equity’s Tax and Welfare Rights helpline for advice on how to write to HMRC to request that this is applied to your record. We strongly recommend you do this before calling the HMRC NIC helpline.

HMRC errors in recording Class 2 NICs

It has recently been revealed that there may have been some errors in registration and payment for class 2 NIC in recent years, see https://www.att.org.uk/class-2-nic-computers- refunded-contributions. It is of particular concern given that changes in legislation from tax year 2014/15 required Equity members to ensure that they were registered for class 2 NIC.

We therefore advise members who are unclear on whether they are registered for Class 2 NICs to check by contacting HMRC either by messaging HMRC via their government gateway account or calling the HMRC NIC helpline on 0300 200 3500. If you are not registered for class 2 NIC, it is advisable to ask HMRC to register you straight away, but then also to obtain a detailed NIC statement (see above) and then contact Equity’s Tax and Welfare Rights helpline for advice on whether it is in your interests to register for an earlier period.

b) CLASS 4 NATIONAL INSURANCE CONTRIBUTIONS

Class 4 NICs are paid by self-employed people on self-employed earnings. They are paid in addition to Class 2 NICs by those with self-employed earnings above the Class 4 Lower Profits Limit (LEL). If you are liable to pay Class 2 NICs you may also be liable to pay Class 4 NICs. If you are not liable to pay Class 2 NICs, you will not be liable to pay Class 4 NICs.

Class 4 NICs take the form of a 9% tax on profits between the LPL and an Upper Profits Limit (UPL). For 2019/20 these limits are £8,632 per and £50,000 per year respectively. If you earn over £50,000 then you are charged at a rate of just 2% for the amounts above £50,000.

Equity Tax and NIC Guide 2019/20 – updated January 2021

Your Class 4 NIC liability is calculated by reference to the net profits you declare on the Self- Employment Pages of your tax return. If you declare profits in excess of the Class 4 Lower Profits Limit, Class 4 NICs will be calculated and charged. When you pay your tax through self- assessment, your Class 4 NIC liability will be itemised separately but included as part of the final amount due.

If you pay Class 4s through self-assessment and have paid income tax in excess of £1,000 for the tax year, then you will need to make a payment on account of Class 4s in the tax year following (see below).

Self-employed for part of the tax year

The maximum amount of Class 2 NICs payable by a contributor who is self-employed for only part of the year is adjusted to reflect the actual number of weeks of self-employment. No corresponding adjustment is made to the amount of Class 4 NICs due.

Payments on Account

Currently, you have to make payments on account of tax if your self-employed tax bill from the previous tax year was £1,000 or more (see page 22). These payments are made in January and July so that if you paid £1,000 or more in tax when submitting your return for 2019/20 in January 2021 you would be asked for half of that upfront and half of any Class 4 NICs payable.

Therefore if you become self-employed in 2019/20 and file your return in January 2021 you may find yourself having to pay your tax and national insurance owing for 2019/20 and half of that will be assumed to be owed for 2020/21. As with tax, you therefore need to plan ahead for these anticipated national insurance bills.

Example

Sarah’s first year of self-employment is 2019/20. Her total taxable self-employed income (after allowable business expenses) is £13,000. Class 2 NICs are payable on net profits above the SPT (currently £6475 in 2019/20) so these would be payable on filing and would amount to £156.00 (£3.00 x 52). Class 4 NICs are payable at 9% above the threshold of £8,632 (2019/20), which means that Sarah would pay £383.12 in Class 4 NICs when she files her return for 2019/20.

In addition, payments on account would be required for Class 4 NICs at the rate of 50% in January 2020 and 50% in July 2020 i.e. £196.56 each time.

When Sarah files her return in January 2021, the total NICs payable are £579.68: this represents the total amount of class 4 NIC due for 2019/20 (£383.12) plus 50% (£196.56) for the January payment on account. The remaining 50% (£196.56) would be payable in July 2021. This may mean that by the time of her 2020/21 return she has

Equity Tax and NIC Guide 2019/20 – updated January 2021

already discharged all NICs owing for that tax year. She would also at that point (January 2022) be making payments on account for 2021/22.

c) OTHER TYPES OF NATIONAL INSURANCE

Class 1 National Insurance Contributions

Many members will have paid Class 1 NICs on self-employed earnings during tax year 2019- 20 and may continue to do so if they undertake PAYE work (where tax and NICs are deducted at source). Class 1 NICs are paid by employed earners as a percentage of gross earnings and are deducted by employers automatically. Class 1 NICs are not payable by employees on earnings of less than £166 per week. On weekly earnings between £166 and £962 national insurance is paid at 12% of earnings (2019/20 figures).

So, if you work as an employed earner under a contract of service and earn £500 per week, you will be liable to pay Class 1 NICs of £40.08 per week.

Weekly Earnings Amount % Earnings Threshold Due 500 - 166 x 12% = £40.08

Earnings in excess of £962 per week are subject to a 2% Class 1 NIC charge. So, if you earn £1,200 in one week you would pay:

Upper Earnings Weekly Upper Amount % Total % Total Limit Threshold Earnings Limit Due 962 - 166 x 12% = £95.52 1200 - 962 x 2% = £4.76 = £100.28

At the same time as you pay Class 1 NICs primary contributions from your salary, your employer should pay Class 1 secondary contributions at a rate of 13.8% of your salary above £16 (for 2019/20). There is no upper limit on this contribution rate.

Note that if you earned between £118 and £166 you will not pay any Class 1 NICs but will be credited with them for the purposes of contributory benefits such as state retirement pension, contributory Employment Support Allowance and contributory Jobseeker’s Allowance. For more information on this, search for ‘Claiming New Style ESA/JSA’ on the Equity website.

Class 3 NICs

These are payable voluntarily in respect of any gaps in your contribution payment history. Class 3 NICs are paid at a flat rate of £15.00 per week (2019/20) and are principally for future state retirement pension purposes.

IMPORTANT NOTE: Whilst you can meet shortfalls in your NIC record by paying Class 3 NICs it is much cheaper to do so where possible by payment of Class 2 NICs if you are self- 37

Equity Tax and NIC Guide 2019/20 – updated January 2021 employed. Unhelpfully, this option is not made clear by HMRC. For further advice, please contact Equity’s Tax and Welfare Rights Helpline.

d) MAXIMUM NIC LIABILITY

For those who have a mixture of employed and self-employed work it is possible to exceed the amount of NICs payable in a tax year through having paid a combination of Class 1, Class 2 and Class 4s. Generally, this will only affect those earning quite large amounts from employment and/or self-employment. HMRC guidance on this can be found here: https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim24170

The calculation can be relatively complicated so if you require assistance in working out whether you have paid the maximum please contact our Helpline for further advice.

e) NATIONAL INSURANCE CREDITS

There are many circumstances where you can qualify for National Insurance Credits; if you are unable to work due to, for example, sickness, caring for a disabled person, looking after a child under 12 years old, etc. National Insurance Credits go towards your National Insurance record and help you to qualify for state pension and certain benefits. If you would like further information and advice on whether you can apply for credits, please see the following link: https://www.gov.uk/national-insurance-credits/overview

f) NATIONAL INSURANCE CONTRIBUTIONS ABROAD

Members who work abroad may find themselves subject to deductions for the foreign equivalents of national insurance. The amounts involved may be far higher than they are here under the Class 2 regime. For this reason, members are often well advised to seek a Certificate of Continuing Liability (A1 Certificate} in order to continue being liable for UK national insurance whilst abroad and to avoid liability to pay foreign national insurance. See https://www.gov.uk/national-insurance-if-you-go-abroad to apply for a certificate, preferably several weeks before the contract commences as it may take time for HMRC to process the request. Note that there are different forms depending on whether you are going there as an employee or self-employed – if you are going abroad as an employee your UK employer completes Form CA3822, more details can be found here: Tell HMRC about employees going to work in the EEA or Switzerland (CA3822) - GOV.UK (www.gov.uk)

If you are going to work abroad on a self-employment basis, you fill in Form CA3837, see: Apply for a certificate or document if self-employed in the EU, EEA or Switzerland (CA3837) - GOV.UK (www.gov.uk)

You can apply online via your government Gateway account as explained in the link. If you are the Director of your own limited company you fill in Form CA3822 as above.

IMPORTANT UPDATE: at the time of writing (11th January 2021) the position on social security payments for those working on temporary contracts within the EU was as follows.

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It has been confirmed that if you work in the EU, Norway or Switzerland, you will only have to pay into one country’s social security system at a time and the default position will be this is the country where the work takes place but see below about the ‘detached worker’ rules.

Already working in the EU

If you are lawfully resident in the UK but started working in the EU before 1st January 2021 on a temporary contract (less than two years) you can apply for an A1 Certificate in the usual way. This also applies to those working in Norway, Iceland, Switzerland or Liechstentstein.

Starting work in the EU from 1st January 2021 – the ‘detached worker’ rules.

Under the new EU/UK Protocol on Social Security Co-ordination, EU countries must decide whether to opt in to the ‘detached worker’ rules. These rules enable you to continue paying UK national insurance only when working in an EU country. This means you may be able to continue getting an A1 Certificate (as above) if you are only working temporarily in the EU. In this context, as above, temporarily means on a contract of less than two years.

In the case of EU countries, whether you can or not will depend on whether the EU country has agreed to apply the ‘detached worker’ rules by 1st February 2021. If you go to work in that country on a contract commencing before 1st February and the country has not opted out of the rules by then, you should apply for an A1 and should be treated as liable only to UK national insurance.

If your contract commences after 1st February 2021, the current position appears to be that you will not be able to get an A1 if the EU country has opted out of the ‘detached worker’ rules and will have to pay social security in that country (you will not then be liable to make contributions in the UK but can make voluntary contributions).

At the time of writing (11th January 2021) the countries which had so far opted in to the ‘detached worker’ rules were Austria, Hungary, Portugal and Sweden. Further updates on the countries which have opted in will be in the link to the government guidance below.

Note that Norway, Switzerland, Iceland and Liechtenstein have different rules from EU countries for the period post-1st January 2021. Please consult our Helpline or email us if you are going to work in one of those countries.

We will be updating the guide further as we learn more about the new system and those countries which have opted in to the ‘detached worker’ rules.

A link to the government guidance can be found here: National Insurance for workers from the UK working in the EEA or Switzerland - GOV.UK (www.gov.uk)

Equity Tax and NIC Guide 2019/20 – updated January 2021

Ireland

Note that if you are a UK or Irish National or any national resident in the UK going to work in Ireland, you will only pay national insurance in the UK.

EU Settlement Scheme

Note that you can also apply for an A1 if you are an EU national who was resident in the UK before 1st January 2021 – this includes those with EU Settlement Scheme status.

Reciprocal agreement countries

If you are going to work abroad in a country with a reciprocal social security agreement with the UK the normal rule is that you would pay social security in that country. At the moment the reciprocal agreement countries are the following: Barbados, Bermuda, Bosnia- Herzegovina, Canada, Chile, Croatia, Guernsey, Israel, Jamaica, Japan, Jersey, Mauritius, Montenegro, New Zealand, North Macedonia, Philippines, Republic of Korea, Serbia, Turkey, USA.

However if you are there on a temporary contract you may be able to continue paying UK national insurance. Both employed and self-employed apply on the same form CA9107 – see: Apply for a certificate of continuing liability for National Insurance - GOV.UK (www.gov.uk)

Equity Tax and NIC Guide 2019/20 – updated January 2021

4. CONTACTS LIST

Equity’s Tax and Welfare Rights Helpline https://www.equity.org.uk/at-work/tax-welfare

Provides confidential advice for Equity members on tax, national insurance and welfare benefit-related enquiries. The helpline is open on Mondays and Thursdays between 10am-1pm and 2pm-5pm. Call 0207 670 0223 or email [email protected].

TaxAid www.taxaid.org.uk

Taxed is a UK charity that offers free, independent and confidential advice to UK taxpayers on a low income (under £20,000 per annum) who are aged under 60yrs old. The service is independent confidential, and provided by qualified tax professionals.

TaxAid does not provide advice on Corporation Tax (Limited Companies), Tax Planning, Tax Credits, Benefits, Council Tax or non-UK tax issues.

For advice or an appointment, call TaxAid’s Helpline 0345 120 3779 between 9.00 a.m. – 5.00 p.m., Monday to Friday.

Tax Help for Older People www.taxvol.org.uk

Tax Help for Older people is a UK charity that provides tax advice for people aged over 60 years old with an annual income of £20,000 or less, and who cannot afford to pay for professional tax advice.

For advice or an appointment, call 0845 601 3321 or 01308 488 066 between 9am-5 pm, Monday to Friday.

HMRC Helpline

Telephone: 0300 200 3310 or for those who are deaf or speech or hearing impaired: 0300 200 3319 (Textphone). Outside UK: +44 161 931 9070.

Provides general information and advice to customers completing self-assessment Tax Returns and associated pages.

HMRC online help desk

Telephone: 0300 200 3600 or for those who are deaf or hearing or speech impaired: 0300 41

Equity Tax and NIC Guide 2019/20 – updated January 2021

200 3603 (Textphone). Outside UK: +44 161 930 8445

Provides advice for technical problems and questions for online self-assessment only.

VAT Helpline

Telephone: 0300 200 3700 or 0300 200 3719 (Textphone). Outside UK: +44 2920 501 261. For customers wishing to discuss VAT matters.

HMRC Foreign Entertainers’ Helpline

Telephone: 0300 322 7877. Outside UK: +44 300 054 7395

A specialist unit which deals with UK tax liabilities for non-(UK) resident entertainers who appear in the UK. Also manages the UK withholding tax system for those who make payments to / for non-resident entertainers.

HMRC National Insurance Helpline

Telephone: 0300 200 3500 or for those who are deaf or hearing or speech impaired: 0300 200 3319 (Textphone). Outside UK: + 44 191 203 7010.

For all classes of national insurance contribution and credit enquiries, including voluntary payments.

Equity Tax and NIC Guide 2019/20 – updated January 2021